By New Deal Democrat
Monthly data for March included a decline in housing permits and starts, although February was revised higher and in particular, single family home permits made a new post-recession high. Existing home sales rose. The index of leading indicators was positive, while February was revised to slightly negative.
My usual note: I look at the high frequency weekly indicators because while they can be very noisy, they provide a good Now-cast of the economy, and will telegraph the maintenance or change in the economy well before monthly or quarterly data is available. They are also an excellent way to "mark your beliefs to market."
In general, I go in order of long leading indicators, then short leading indicators, then coincident indicators.
Interest rates and credit spreads
- 4.79% BAA corporate bonds up +.01% (down over -.60% since Jan 1)
- 1.88% 10-year treasury bonds up +.18%
- 2.91% credit spread between corporates and treasuries down -.17%
Yield curve, 10-year minus 2-year:
- 1.01%, down -.01% w/w
30-year conventional mortgage rate:
- 3.75%, up +0.11% w/w
With the exception of BAA corporate bond yields, which made a new 50+ year low in January 2015, yields for corporate bonds, treasuries, and mortgages have all failed to make new lows in 3 years, thus turning yellow (caution or neutral vs. positive) as a recession indicator - although treasuries and mortgage rates both came very close to new all-time lows in February, and remain low enough to be short-term positives. Spreads have improved enough in the last two months to go from negative to neutral. If spreads fall below 2.75%, I will score them a positive. The yield curve has gone from very positive to only normally positive.
- Purchase applications down -1% w/w
- Purchase applications up +17% YoY
- Refinance applications up +3% w/w
Real Estate loans
- +0.1% w/w
- +6.6% YoY
Mortgage applications had been awful for several years, before turning up early last year in response to very low rates. They are now strongly positive.
Real estate loans have been firmly positive for nearly 3 years.
- -0.2% w/w
- +2.2% m/m
- +5.3% YoY Real M1
- Unchanged w/w
- +0.7% m/m
- +5.3% YoY Real M2
Real M1 decelerated markedly in January to the point where it was a very weak positive, and has fluctuated since then. Real M2 also decelerated, but has been more firmly positive. Both were very positive this week.
Trade weighted US dollar
- Down -0.25 to 119.67 w/w, up +4.0% YoY (Broad)
- Up +0.42 to 95.12 w/w, Down -2.2% YoY (major currencies)
The broad measure is reported by the FRB on Mondays and so is delayed one week. Bloomberg's spot price against major currencies is accurate as of Friday. The US dollar appreciated about 20% from July 2014 through March 2015. Afterward, the broad measure continued to appreciate, but at a relatively more moderate trend, while against major currencies the US dollar has been flat. l consider a YoY change of 5% or higher a negative. The broad measure has now fallen below that mark, and against major currencies, the US dollar turned outright positive.
- Up +0.90 to 89.79 w/w
- Down -12.19 YoY
BBG Industrial metals ETF
- 97.61 up +4.13 w/w
Commodity prices as measured by industrial metals appear to have bottomed in November. ECRI and oil have also now turned up. This is enough to move commodities from negative to neutral.
Stock prices S&P 500
- Up +2.2% w/w
- Down -1.8% from 1-year high 11 months ago
Stock prices made new 6-month lows in February, but also just made an intraday 6-month high as well. For forecasting purposes, I am scoring this as a neutral.
Regional Fed New Orders Indexes
(*indicates report this week)
- Empire State up +1 to +11
- *Philly down -16 to 0
- Richmond up +30 to +24
- Kansas City up +5 to -2
- Dallas up +13 to -5
- Month-over-month rolling average: down -3 at +6
I inaugurated coverage of these indexes as an experiment. Since the ISM new orders index is an excellent short leading indicator for sales and industrial production (roughly by 6 months), can a rolling average of these regional indexes reasonably forecast the direction and intensity of moves in that monthly index? So far, the two April reports are giving mixed signals, but the rolling average remains positive.
Initial jobless claims
- 247,000 down -6,000 (new 40 year low)
- 4-week average 260,500 down -4,500
Initial claims remain well within the range of a normal economic expansion, as does the 4-week average. After weakening in January, they have since recovered, and this week made a new low.
The American Staffing Association Index
- Unchanged at 94 w/w
- Down -2.28 YoY
Since last spring, the YoY comparison turned neutral and then increasingly negative, although since the beginning of the year it has generally been "less worse." I would need this series to be -2.15% YoY or less for me to believe it has bottomed. It almost but not quite got there this week.
- $138.1 B for the first 15 days of April vs. $130.3 B one year ago, up +$7.8 B or +7.8%
- $176.0 B for the last 20 reporting days ending Thursday vs. $169.8 B one year ago, up +$6.2 B or +3.6%
Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, while still positive, since August. In February, I said I would need this series on the 20-day basis to decline to less than +2% YoY for me to think it has reached a turning point, and it did so for 3 weeks in a row, thus becoming a major red flag. That has since abated, and April collections are running quite positive.
- Oil up +$0.64 to $40.36 w/w
- Gas prices up +$.07 to $2.14 w/w
- Usage 4-week average up +3.9% YoY
The price of gas bottomed this winter at $1.69. Usage turned briefly negative at the beginning of the year, but is now positive again.
Bank lending rates
Both TED and LIBOR were already rising since the beginning of last year to the point where both have usually been negatives, although there were some wild fluctuations. Both TED and LIBOR were at or near 5-year highs in the past several months, but both have improved in the last several months, although in the last 4 weeks the TED spread rose back close to that high.
- Johnson Redbook up +0.5% YoY
- Goldman Sachs up +0.4% w/w, up +1.7% YoY
- Gallup daily consumer spending 14-day average $93, down -$3 YoY
Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat since the beginning of November. Gallup has been positive almost every week so far this year - but obviously not this week - which, because it includes gas purchases, strongly suggests that consumers have started to spend some of their gas savings on other things. Both JR and Goldman Sachs were weakly positive this week.
- Carloads down -12.9% YoY
- Loads ex-coal down -4.3% YoY
- Intermodal units down -7.4% YoY
- Total loads down -10.1% YoY
Rail traffic turned negative and then progressively worse in pulses throughout 2015. While intermodal traffic quickly turned positive, domestic carloads, led by coal (for export), continued to deteriorate. Rail loads became "less worse" in January and showed continued improvement until going over the proverbial cliff 5 weeks ago. This has gone on long enough that I am simply scoring it a big negative.
After rising briskly last spring, both the BDI and Harpex recently declined again to new multi-year lows. In the last few weeks, the BDI has rebounded enough for it to be scored a neutral.
- Up +2.2% w/w
- Up +2.7% YoY
Until spring 2014, steel production had generally been in a decelerating uptrend. It then gradually rolled over and got progressively worse in pulses through the end of 2015. In the last three months, these became "less worse" and now positive.
Among long leading indicators, interest rates for corporate bonds, treasuries, the yield curve, real money supply, real estate loans, mortgage applications, and mortgage rates are positive. At the same time, no interest rates have made new lows in at least a year, and mortgage rates have not made new lows for over 3 years, so while the "now-cast" is positive, this is a big negative in the longer term forecast.
The short leading indicators have had marked improvement, and there are no more negatives. The spread between corporates and treasuries has gone from negative to neutral. Commodities across the board have improved enough to be scored as neutral, and stocks briefly made a new 6-month intraday high, enough to also go from negative to neutral. The broad US dollar is neutral, while against major currencies it is positive. Jobless claims, oil and gas prices, and usage, all remain very positive.
Among coincident indicators, rail transport, which had turned positive, had an absolutely awful week for the 6th week in a row. Bank rates and staffing also remain negative. Shipping is mixed, with Harpex negative and the Baltic Index improved enough to be scored a neutral. Steel is positive. After a stumble last week, withholding taxes are positive again.
The improvement to neutral or outright positive among a number of the indicators, especially long and short leading ones (corporate yields, stock prices, commodities, the US dollar, new orders) remains, and this week was joined by spreads, commodities, and the Baltic Index. Tax withholding returned to being positive. The negatives are reduced to rail, Harpex, and bank lending rates, with even staffing turning less negative.
I continue to believe that while the industrial recession has deepened (industrial production, rail and truck transportation); the improvement in the long and short leading indicators, and now a few coincident ones as well, argues that we are near the bottom, and a rebound should begin shortly. This week three of the regional Feds will report on manufacturing and new orders, and we'll get a clearer picture of whether or not April will continue March's positive news.